Reality check: Indian etailers' marketplace model can create more Ubers

E-commerce activities refer to the activity of buying and selling by a company through the e-commerce platform. Such companies would engage only in Business to Business (B2B) e-commerce and not in retail trading, inter-alia implying that existing restrictions on FDI in domestic trading would be applicable to e-commerce as well.

The above is an extract from the government FDI circular of 2013 which permits 100 percent FDI only if the e-commerce model is B2B.

In the light of the above, the statement–if you will allow B2C (business to consumer) today, the Amazons of the world will come over and Flipkart will get finished tomorrow–made by Department of Industrial Policy and Promotion (DIPP) Secretary Amitabh Kant strikes an odd note. Does he seriously believe that what Amazon and for that matter what Flipkart are doing in India is not B2C?

More from Corporate

Maha: Court orders Rs 30L compensation for parents after youth dies in road accident Ashleigh Barty comes from set down to beat Coco Gauff in Australian Open lead-up

Most of the etailers in India including Amazon and Flipkart are pulling wool over the eyes of authorities when they say their business model is marketplace i.e. they are only aggregators, offering their websites for use by sellers to deal with online buyers and hence they are not into B2C but only doing B2B. It was reported months ago, when the NDA government was freshly installed on the saddle, that the true legal import of the marketplace model was under examination. One wonders why it is taking so long to call their bluff.

To be sure, Amazon and Flipkart may not be buying goods from their suppliers, a sneaking suspicion harboured by the Karnataka VAT authorities. It may also be true that all that they do are offer their online trading platform for online buyers to place order and make payments. But the reality is the entire online activity is between them and online buyers, making it clearly a case of B2C. It is not as if the suppliers sell their wares to Amazon and Flipkart online. Nor are their trading platforms open only to wholesale buyers. Remember, when I place an online order for shoes, the privity of contract is between me and Flipkart, not between me and the shoe seller who is using Flipkart’s services.

Mr Kant is wrong about many other things as well. He says Alibaba is all about B2B and that is what India is trying to emulate in its desire to protect young Indian techies having flair for setting up e-commerce portals. He is clearly wrong. Alibaba has all the three versions—B2B, B2C and C2C. Amazon India takes on orders from anyone including consumers. So does Flipkart. Therefore they are competitors and Flipkart simply cannot be protected from Amazon as claimed by Kant. By the way, Kant’s concerns are strange. He wants to protect Flipkart from Amazon whereas his concern must be to protect the consumers. Flipkart can take care of itself. It is substantially funded by foreign capital and is not exactly a David, cowering before the gigantic Amazon.

It is the consumers whose interest may be hurt under the marketplace model that is sought to be passed off glibly as B2B. The recent Uber saga showed that aggregators can wash their hands off disagreeable transactions between suppliers selling through their portals and consumers. To be sure, a consumer may not be nave to believe that what is buying is a product manufactured by Amazon or Flipkart but he does believe that it is marketed by them and hence quality and fair dealing norms would be adhered to. But aggregators can quickly wash their hands off disagreeable transactions as the Uber experience showed. One is not sure whether they take care a la Colgate or HUL (who get their toothpastes manufactured by small scale units in addition to manufacturing themselves) that the actual manufacturer scrupulously adheres to quality norms.

Incidentally, the FDI circular says if the FDI e-commerce model is B2C, the enterprise will have to comply with the norms laid out for multi-brand retailing of the bricks and mortar variety—not more than 51 percent FDI, investment in back-end infrastructure of at least 50 percent of the FDI made within three years of the bringing in of the first tranche of foreign capital etc. Amazon must clearly be falling foul of the 51 percent norm. Both Flipkart and Amazon would be most certainly falling foul of the backend infrastructure investment norm.

The circular says rented warehouses would not make the grade. What the government expects is investments are made in own warehouses and cold storages. One is not sure if the etailers embracing the marketplace model and equating it with B2B have made any effort at all to simultaneously ensure that they comply with the multi-brand retail norms as a fallback option just in case the government calls their bluffs.